INTERNATIONAL CENTER FOR SETTLEMENT OF INVESTMENT DISPUTES CHAMBER IN FRANKFURT. MEDBREG CO. [Claimant]

Transcription

1 Zoricic Team INTERNATIONAL CENTER FOR SETTLEMENT OF INVESTMENT DISPUTES CHAMBER IN FRANKFURT MEDBREG CO. [Claimant] v. THE GOVERNMENT OF THE REPUBLIC OF BERGONIA [Respondent] MEMORANDUM FOR RESPONDENT September 21 st, 2009 i

2 TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF ABBREVIATIONS LIST OF AUTHORITIES SUMMARY OF ARGUMENTS 1 STATEMENT OF FACTS 2 PART ONE: JURISDICTION 4 I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THIS DISPUTE, BECAUSE CLAIMANT IS NOT A FOREIGN INVESTOR 4 AND CLAIMANT S ACTIVITY IN BERGONIA DOES NOT CONSTITUTE AN INVESTMENT. A.General remarks. 4 B.Claimant is not entitled to the investor s rights protection under BIT1. 4 C.Claimant does not meet the requirements of Article 25 of ICSID Convention. 4 II.CLAIMANT IS A LOCAL INVESTOR AND THERFORE MAY NOT COMPEL FOR PROTECTION UNDER BIT1. 5 III.CLAIMANT IS A NATIONAL OF A HOST STATE AND FAILS TO FULFILL REQUIREMENTS OF ARTICLE 25 (2) OF THE ICSID 6 CONVENTION. A.General remarks. 6 B.Claimant fails to prove that Respondent consented to treat Claimant as a foreign investor for the purposes of Article 25(2)(b) of the ICSID Convention. 1.Article 25(2)(b) must be understood as an exception to general conditions for ICSID jurisdiction 2.The Tribunal should apply the because test when considering Article 25(2)(b). C.Alternatively, even if the Tribunal decides to pierce the corporate veil, it shall look beyond the first layer to find genuine control over Claimant. D.Claimant may not invoke the MFN clause contained in BIT1 to attract dispute resolution provisions from BIT2. 1.Persuasive precedents prove that the MFN CLAUSE may not be invoked to attract the Consent Clause. 2.Literal interpretation proves that the MFN Clause does not encompass 12 iii v vi ii

3 dispute settlement provisions. 3.Claimants interpretation of the MFN CLAUSE broadens the scope of Respondent s consent to arbitrate and should not be permitted. 4.Claimants interpretation of BIT2 provisions violates public policy considerations underlying BIT1. E.Claimant would not be able to benefit from the relevant provisions of BIT2. 1.Claimant shall not be allowed to invoke only the Consent Clause 15 2.Claimant does not fulfil standing requirements of the dispute resolution provisions of BIT2 3.Denial Clause additionally limits the possibility of invoking relevant provisions of BIT2. 4.The relevant provisions that Claimant intends to rely on are not more favourable and therefore may not be attracted by the MFN CLAUSE. IV.CLAIMANT S ACTIVITY DOES NOT CONSITUTE AN INVESTMENT. A.General remarks B.BIT1 protects only investments made by investors. V.CLAIMANT S ACTIVITY IN BERGONIA DOES NOT FULFILL THE PREREQUISITES OF INVESTMENT CONTAINED IN ICSID CONVENTION A.Claimant s actions do not meet investment definition of Article 25 of 20 ICSID Convention. B.Claimant does not meet any of the requirements of the Salini test, which is to be applied when determining notion of investment under ICSID 24 Convention. 1.Claimant s activity in Bergonia did guaranteed no regularity of profit and return whatsoever Claimant s activity in Bergonia involved no operational risk Claimant s activity in Bergonia did not contribute to the development of the host State. C.Conclusion VI.CLAIMANT ERRED IN CHOOSING THE APPROPRIATE ARBITRATION INSTITUTION TO JUDGE HIS CLAIM. 28 iii

4 PART TWO: MERITS 31 I.COMPULSORY LICENCE ISSUED BY BERGONIAN IP OFFICE DOES NOT VIOLATE GENERAL INTERNATIONAL LAW OR 31 APPLICABLE TREATIES. A.Applicable law TRIPS is not applicable to the present dispute. 31 B.Even if applied, TRIPS only serves supplementary purpose for interpretation of FET standard content. 32 C.Respondent s actions were TRIPS compliant. 33 D.Mere breach of TRIPS does not constitute BIT1 violation. 37 E.Conclusion 38 II.COMPULSORY LICENSE ISSUED BY BERGONIAN AUTHORITIES IS LAWFUL A.General remarks. 38 B.CL is not a measure of expropriation. 38 C.CL is a regulatory measure. 41 D.Even if the Tribunal decides that CL is a measure of expropriation, it is lawful. E.Conclusion 45 RELIEF REQUESTED iv

5 TABLE OF ABBREVIATIONS Bergonia BIT CC CL Claimant, Investor Clarifications1 Clarifications2 Conveniencia DC FET FMV GATT ICSID, Center MedBerg MedScience MedX MFN CLAUSE MFN clause Democratic Commonwealth of Bergonia Bilateral Investment Treaty Consent Clause Article VI(8) of BIT2 Compulsory License MedBerg 2009 Clarifications 5 June 2009 Clarifications 14 August Sultanate of Conveniencia Denial Clause Article I(2) of BIT2 Fair and equitable treatment Fair Market Value General Agreement on Tariffs and Trade, October 30, 1947, Geneva International Centre For Settlement Of Investment Disputes MedBerg Co. MedScience Co. MedX Holdings Ltd Most favoured nation clause Article 3 of BIT1 Most favoured nation clause Paragraph Patent AZ2005 IP Office WTO Patent No. AZ2005 Bergonian Intellectual Property Office World Trade Organization v

6 LIST OF AUTHORITIES List of authorities: Amerasinghe C. F. Amerasinghe, The International Centre for Settlement of Investment Disputes and Development through the Multinational Corporation, Biadgleng Ermias Tekeste Biadgleng, IP Rights Under Investment Agreements: The TRIPS-plus Implications For Enforcement and Protection of Public Interest, South Centre Research Papers, 2006 Broches Aaaron Broches, Arbitration Clauses and Institutional Arbitration in: World Bank, ICSID, and other subjects of public and private international law, Martinus Nijhoff Publishers (1995) Correa Carlos M. Correa, Investment Protection in Bilateral and Free trade Agreements: Implications for the Granting of Compulsory Licenses, GRAIN, 2004 Delaume Georges R. Delaume, Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1 International Law (1966). vi

7 Garner Bryan A. Garner, Editor, Black s Law Dictionary, Thomson West 2001 Gibson Christopher S. Gibson, A Look at the Compulsory Licence in Investment Arbitration: The Case of Indirect Expropriation, Suffolk University Legal Studies Research Paper Series, Research Paper 09-32, 2009 Lockhart, Mitchell Nicolas JS Lockhart, Andrew D Mitchell Regional Trade Agreements Under GATT 1994: An Exception and Its Limits in: Andrew D Mitchell (ed), Challenges and Prospects for the WTO, London Cameron, 2005 Love James Love, Compulsory Licensing: Models For State Practices in Developing Countries, Access to Medicine and Compliance with the WTO TRIPS Accord, Third World Network, 2001 McLachlan Campbell McLachlan QC, Laurence Shore and Matthew Weiniger, International Investment Arbitration: Substantive Principles (Oxford International Arbitration Series), Oxford University Press, (2007) Ranjan P. Ranjan, Medical Patents and Expropriation in International Investment Law - with Special Reference to India, vii

8 Manchester Journal of International Economic Law Volume 5. Rubins N. Rubins, The Notion of Investment in International Investment Arbitration [in] N. Horn S Kröll, Arbitrating Foreign Investment Disputes. Procedural and Substantive Legal Aspects, Kluwer Arbitration 2004 Sands Philippe Sands, Searching for Balance: Concluding Remarks, New York University Environmental Law Journal, 11, ( ) Schreuer Christoph Schreuer, The ICSID Convention: a Commentary, Cambridge University Press, Schreuer, Dolzer C. Schreuer, R. Dolzer (2008) Principles of International Investment Law, Oxford: Oxford University Press Sease Edmund J. Sease, Common Sense, Nonsense and The Compulsory License, Journal of Patent Office Society, April 1973, vol. 55, No. 4 Verhoosel Gaetan Verhoosel, The Use of Investor-State Arbitration Under Bilateral Investment Treaties to Seek Relief for Breaches of WTO viii

9 Law, 6 Journal of International Economic Law 493, 2003 List of cases: Amco Amco Asia Corp. v. The Republic of Indonesia, ICSID Case No. ARJ , Award on the Merits of 20 November 1984, 1 ICSID Reports 413 AWG Group AWG Group Limited v. Argentina, Decision on Jurisdiction, IIC 21 (2006), 3rd August 2006, Ad Hoc Tr (UNCITRAL) Bayindir Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Decision on Jurisdiction of November 14, Biwater Biwater Gauff (Tanzania) Limited v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award of July Ceskoslovenska Obchodni Banka Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic, ICSID Case No. ARB/97/4, Decision of the Tribunal on Objections to Jurisdiction of May 24, City of Milwaukee City of Milwaukee v. activated Sludge, 7th Circ., 1934, 69 F.2d 577 Fedax Fedax N.V. v. Republic of Venezuela, ICSID ix

10 Feldman Case No. ARB96/3, Decision Objects to Jurisdiction of July 11, Feldman v Mexico, ICSID Case No. ARB(AF)/99/l, 18 ICSID Review-FILJ (2003), 488. Generation Ukraine Generation Ukraine, Inc v Ukraine, Award, ICSID Case No ARB/00/9; IIC 116 (2003), 44 ILM 404, 15 September 2003 Helnan Helnan v. Egypt, ICSID Case No. ARB/05/19, Decision of the Tribunal on Objection to Jurisdiction of October 17, Iurii Bogdanov Iurii Bogdanov, Agurdino Invest Ltd and Agurdino-Chimia JSC v Republic of Moldova (Award) (SCC, 2005, Cordero Moss G) Jan de Nul Jan de Nul v. Egypt, ICSID Case No. ARB/04/13, Decision on Jurisdiction of June 16, Joy Mining Joy Mining Machinery Ltd. V. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Decision on Jurisdiction of August 6, 2004 LESI-DIPENTA Consorzio Groupment LESI-DIPENTA v. Algeria, ICSID case No. ARB/03/8, Award of January 10, 2005 x

11 LG&E LG&E International Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, 46 ILM (2007), 36 Maffezini Maffezini v. Spain, Decision on Objections to Jurisdiction, ICSID Case No ARB/97/7, IIC 85 (2000), (2001) 16 ICSID Rev-FILJ 212, (2002) 5 ICSID Rep 396, (2003) 124 ILR 9, (2001) 40 ILM 1129, 25th January 2000, ICSID Malysian Historical Salvors Malaysian Historical Salvors, SDN, BHD v. Malaysia, ICSID Case No. ARB/05/10, Award of May 17, Metalclad Metalclad Corp v. Mexico, Award, Ad hoc ICSID Additional Facility Rules; ICSID Case No ARB(AF)/97/1; IIC 161 (2000) Methanex Methanex Corporation v United States, Final award on jurisdiction and merits, Ad hoc UNCITRAL Arbitration Rules; IIC 167 (2005) 3 August 2005 Middle East Shipping Middle East Shipping and Handling Co. S.A v. Arab Republic of Egypt, ICSID Case No. ARB/99/6, Award of April 12, National Grid xi National Grid PLC v Argentina, Decision on

12 Jurisdiction, Ad hoc UNCITRAL Arbitration Rules; IIC 178 (2006) 20 June 2006, Oscar Chinn Oscar Chinn, PCIJ, Judgment, Series A/B, No. 63 (1934) Patrick Mitchell Patrick Mitchell v. Congo, ICSID Case No. ARB/99/7, Decision on Application for the Annulment of the Award of November 1, Philippe Gruslin Philippe Gruslin v Malaysia, ICSID Case No ARB/99/3, Award of November 27, Phoenix Action ltd v. Czech Republic, ICSID Case No. ARB/06/5, Award of April 15, Plama Plama Consortium Limited v. Bulgaria, Decision on Jurisdiction, ICSID Case No ARB/03/24, IIC 189 (2005), (2005) 20 ICSID Rev-FILJ 262, (2005) 44 ILM 721, 8th February 2005, ICSID Pope & Talbot Pope & Talbot Inc v Government of Canada (Interim Award) 7 ICSID Rep 69, 87 (NAFTA/UNCITRAL, 2000, Dervaird P, Greenberg & Belman) Rompetrol The Rompetrol Group N.V. v. Romania (ICSID Case No. ARB/06/3) xii

13 Saipem Saipem S.p.A. v. Bangladesh, ARB/05/07, Decision on Jursdiction and Recommendation on Provisional Measures of March 21, Salini Costruttori Salini Costruttori S.p.A. and Italstrade S.p.A v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction of July 23, 2001 SD Myers SD Myers Inc v. Canada, First Partial Award and Separate Opinion, Ad hoc UNCITRAL Arbitration Rules, IIC 249 (2000) Sea Land Service Sea Land Service Inc. v Iran, 6 US Iran C.T.R. Siemens Siemens AG.v Argentina, Decision on Jurisdiction, ICSID Case No ARB/02/8, IIC 226 (2004), 3rd August 2004, ICSID Tecmed Técnicas Medioambientales Tecmed SA v Mexico, Award, ARB(AF)/00/2; IIC 247 (2003); 10 ICSID Rep May 2003 Telenor Telenor Mobile Communications AS v. Hungary, Award, ICSID Case No ARB/04/15, IIC 248 (2006), (2006) 21 ICSID Rev-FILJ 603, 22nd June 2006, despatched 13th September 2006, ICSID. xiii

14 TSA Spectrum TSA Spectrum de Argentina S.A. v. Argentina Republic, ICSID Case No. ARB/05/5 (Netherlands/Argentina BIT). -Award, 19 December 2008 Vitamin Technologists Vitamin Technologists v. Wisconsin Alumni Research Foundation, 9th Circ., 1945, 146 F.2d 941 Wintershall Wintershall Aktiengesellschaft v Argentina, Award, ICSID Case No ARB/04/14; IIC 357 (2008), 8 November 2008, ICSID List of binding legal acts: DSU Final Act, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, Understanding on Rules and Procedures Governing the Settlement of Disputes, 15 April 1994 TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, Marrakesh Vienna Convention Vienna Convention on the Law of Treaties, 23 May 1969, Vienna List of non-biding legal resources: Doha Declaration on TRIPS Doha Declaration on the TRIPS Agreement xiv

15 and Public Health WT/MIN(01)/DEC/2 adopted on 14 November 2001 Doha Ministerial Declaration Doha Ministerial Declaration WT/MIN(01)/DEC/1 adopted on 14 November 2001 Draft Articles on MFN UN Draft Articles on Most-Favoured-Nation Clauses, 1978 UNCTAD U.N. Conference on Trade and Development, Bilateral Investment Treaties in the Mid-1990s., New York and Geneva: United Nations), United Nations publication, Sales No. E.98.II.D.8. xv

16 SUMMARY OF ARGUMENTS 1 Firstly, the Tribunal lacks jurisdiction over this dispute because Claimant cannot be seen as a foreign investor. Claimant does not meet nationality requirements provided in BIT1, neither it meets prerequisites from Article 25(2) of the ICSID Convention. Claimant cannot profit from the foreign control exception stipulated in Articled 25(2)(b), as the nationality of genuine control over Claimant excludes ICSID jurisdiction. Moreover Respondent has never consented to treat Claimant as a foreign investor, nor Claimant can invoke the MFN clause contained in BIT1 in this matter. 2 Secondly, the patent as such does not constitute an investment. It is a right which excludes others from making, using, marketing, selling or importing an invention for a specified period of time. Investment on the other hand is a complex operation consisting of various activities, transactions and property. Each element as a part of this enterprise cannot be qualified alone as an investment. Stated in Article 1(1)(d) of BIT1 the term investment comprises every kind of asset, including patents, but asset itself is not the same as investment. Sources of international investment law indicate that nature of intellectual property right alone is something else than investment described in ICSID Convention. 3 Finally, TRIPS is not applicable to the present dispute. It is submitted that all of the requirements from Article 31 TRIPS were met and therefore Claimant was treated fairly and equitably. However, even if a breach of TRIPS was established, Respondent is still not liable as none of the actions on his part were ever discriminatory. Moreover, CL issued by Bergonian authorities is not a measure of expropriation. It was a regulatory measure, issued within the powers of the State to protect health of society. However, even if the Tribunal decides, that it was a measure of expropriation, it fulfilled all conditions for being a measure of lawful expropriation, which is not prohibited by international law. Therefore Bergonia by no means violated BIT

17 STATEMENT OF FACTS 4 Respondent, that is the Government of the Republic of Bergonia, with a view to promote and intensify economic co-operation by creating favourable conditions for foreign investment entered into a Treaty Concerning the Encouragement and Reciprocal Protection of Investments with the Sultanate of Conveniencia. The said agreement was conducted on 30 th May Claimant, that is MedBerg Co., remains a Bergonian company yet influenced by foreign capital in the following way. 5 One hundred shares in MedBerg is owned by MedX Holding Ltd, a company which is registered in Conveniencia and which is co-owned by two entities: fifty percent ownership is assigned to MedScience Co. registered in Laputa and the remaining fifty percent is held by Dr. Frankensid, a dual national of Amnesia and Bergonia who remains an employee of MedScience. 6 While employed in MedScience and basing on the research and development conducted by that company, Dr. Frankensid has invented a breakthrough treatment which proves extremely useful in tackling obesity and other medical problems associated with it. Invention s impact on obesity has been confirmed by independent experts. 7 The worldwide interest in the invention has been assigned to MedBerg who consequently filed an application to Bergonian Intellectual Property Office and as a result was granted and became an owner of Bergonian Patent AZ2005 on 15 th March MedBerg explored its patent by way of licensing it to a Bergonian entity BioLife. The Licence Agreement between MedBerg and BioLife was entered into on 31 st March The licence was an exclusive one and no other entities explored the patent in the territory of Bergonia. Subsequently, on 31 st March 2007, Claimant terminated the Licence Agreement, leaving the population of Bergonia with a substantially diminished access to the patented obesity treatment. 9 On 1 st June 2007, Bergonian IP Office commenced proceedings aiming at issuance of compulsory licence with regard to Patent AZ2005 so as to address important domestic medical needs and react to the increasing obesity problem which achieved an alarming level of 34% Bergonian males and 38% females being overweight. The proceedings - 2 -

18 were concluded on 1 st November 2007, leading to the issuance of compulsory licence for the period of 48 months. 10 Until 1 st January 2009 six companies, including BioLife, invoked the compulsory licence. Three of those exported unspecified amounts of the products covered by the licence. Importing countries were all members of a customs union with Bergonia. 11 Claimant appealed from IP Office s decision which was then subject to review by the Patent Review Board. The decision was found in conformity with Bergonian law. On 1 st December 2007, relying on Article 10(2) of Bergonia Conveniencia BIT, Claimant informed Bergonian Foreign, Economics and Justice Ministers of its position. On 10 th December 2007, in response to Claimant s letter, Justice Ministry stated in a formal reply that compulsory licence was issued in conformity with Bergonia s international obligations. 12 Bergonian IP Office collected royalties from all of the companies invoking compulsory licence and offered them to Claimant who refused to accept them claiming they were inadequate. Claimant did not appeal to the Patent Review Board as to the level of remuneration offered. 13 On 1 st November 2008 Claimant initiated this arbitration

19 PART ONE: JURISDICTION I. THE TRIBUNAL DOES NOT HAVE JURISDICTION OVER THIS DISPUTE, BECAUSE CLAIMANT IS NOT A FOREIGN INVESTOR AND CLAIMANT S ACTIVITY IN BERGONIA DOES NOT CONSTITUTE AN INVESTMENT. A. General remarks. 14 The Tribunal shall find that it lacks jurisdiction over present dispute as Claimant does not satisfy prerequisites provide under terms of BIT1, neither it fulfills standing requirements of Article 25 of the ICSID Convention since Claimant is a national of Bergonia (II, III) and its activities in Bergonia do not consist of an investment (IV,V). Therefore Claimant failed in choosing the appropriate arbitration institution for deciding over this dispute (VI). B. Claimant is not entitled to the investor s rights protection under BIT1. 15 Article 1 of BIT1 defines equally the investor and the investment, as basic requirements that must be fulfilled to grant an entity special right protection of the foreign direct investment regime. Claimant does not meet any of those requirements. 16 Claimant s seat is in Bergonia, which provides for Bergonian nationality within the meaning of Article 1(3)(a) of BIT1 (II). Thus, Claimant shall be seen as a domestic investor and it may not be granted special treatment for foreign investors. Moreover, as BIT1 protects only investments made by investors, Claimant s activities cannot be associated with investment defined in BIT1 (IV). C. Claimant does not meet the requirements of Article 25 of ICSID Convention 17 Claimant is not admissible for the arbitration proceedings provided in ICSID Convention, because Claimant fails to fulfill standing requirements expressed in Article 25 of ICSID Convention

20 18 Claimant is not a national of another Contracting State, because Claimant does not comply with conditions set out in Article 25(2)(b) providing a foreign control exception for locally incorporated companies (III B). Correspondingly, even if the Tribunal shall decide to pierce the corporate veil and look for foreign control, the Tribunal will find that its jurisdiction is expressly excluded by Article 25(2)(a), because Claimant is controlled by dr Frankensind having dual nationality (III C).Furthermore, Respondent never consented to treat Claimant as a foreign investor (III B) and Claimant may not invoke the MFN clause contained in BIT1 in this respect (III D). 19 Finally, Claimant s activity in Bergonia does not meet investment prerequisites contained in ICSID Convention (IV). Although, ICSID Convention does not provide for any special definition describing investment, Tribunals have vaguely applied the so-called Salini test to verify whether certain actions have notion of investments. In a present case Claimant does not comply with any of conditions set out in the aforementioned test (V). II. CLAIMANT IS A LOCAL INVESTOR AND THERFORE MAY NOT COMPEL FOR PROTECTION UNDER BIT1. 20 Article 1(3)(a) of BIT1 defines investor in a respect of Bergonia, as any juridical person ( ) having its seat in the territory of Bergonia. According to Vienna Convention terms of every treaty shall be interpreted in accordance with their ordinary meaning 1. Consequently, having in mind parties intent, it stays beyond any doubt, that siège social should be decisive when determining investor s nationality. 21 As it was noted by the Tribunal in Rompetrol: Given the latitude granted to States under ICSID Convention to settle the applicable nationality criteria, there is nothing illogical in looking first of all to whether the nationality criteria set forth in the BIT are satisfied ( ) Generally, consent in every type of arbitration is a crucial element, without which none arbitration proceedings are possible. It is then very important to look at the intent 1 Article 31 of Vienna Convention 2 Rompetrol, para

21 of the parties. Therefore, parties agreement on definition of nationality shall be given priority, if it is provided in BIT governing the dispute. 23 In a present dispute, not only Claimant is incorporated in Bergonia and it cannot be forgotten, that place of incorporation is the most commonly used test for nationality in international law but also, Claimant has its seat in the territory of Bergonia 3. This makes evident, that squarely fits to the definition of a national of the host State contained in BIT1. Thus, finding that Claimant shall not be granted any protection under BIT1 is undeniable, as it is undisputed that bilateral investment treaties have been created to promote foreign investments, not local ones. III. CLAIMANT IS A NATIONAL OF A HOST STATE AND FAILS TO FULFILL REQUIREMENTS OF ARTICLE 25 (2) OF THE ICSID CONVENTION. A. General remarks. 24 As it was already stated, the consent to arbitrate is a basic and primary prerequisite for every arbitration, including ICSID arbitration. No entity, neither a state nor an entity of the private law, shall be compelled to arbitrate if the above is missing. It is accepted in jurisprudence that consent to treat a locally incorporated company as a foreign investor on the basis of Article 25(2)(b) of the ICSID Convention, shall be perceived as a part of the consent to arbitrate As stressed by the Wintershall tribunal, the jurisdiction requirements based on the applicable BIT provisions constitute: an integral part of the standing offer ( consent ) of the Host State, which must be accepted on the same terms by every individual investor who seeks recourse (ultimately) to ICSID arbitration Therefore, in the lack of the blank consent to treat a locally incorporated company automatically as a foreign investor for the purposes of Article 25(2)(b) upon fulfilment of certain conditions, ( as for example Consent Clause contained in BIT2), 3 Clarifications1 No. 35, 43 4 Schreuer, para Wintershall, para

22 it shall be observed that obtaining such consent is a condition precedent of establishing Bergonia s consent to arbitrate and ICSID jurisdiction based on the provisions of BIT1. 27 Considering the above, Claimant may not compel Respondent to arbitration as (B.) Claimant fails to prove that Respondent consented to treat Claimant as a foreign investor, alternatively (C.) the Tribunal shall look for nationality of genuine control. Moreover, (D.) Claimant shall not be allowed to invoke MFN clause contained in BIT1 to attract particular dispute resolution provision from BIT2 to prove the existence of such consent and (E.) Claimant would not be able to benefit from the relevant provisions of BIT2. B. Claimant fails to prove that Respondent consented to treat Claimant as a foreign investor for the purposes of Article 25(2)(b) of the ICSID Convention. 1. Article 25(2)(b) must be understood as an exception to general conditions for ICSID jurisdiction 28 As a matter of principle ICSID arbitration may be invoked to resolve disputes between Contracting States and nationals of other Contracting States 6. The requirement that a party to the dispute other than the host State should be a national of other Contracting State is of the utmost importance while determining the jurisdiction of the ICSID tribunal and as stressed by Schreuer was contained in all drafts leading to a Convention. 7 The fulfilment of all the prerequisites set out in Article 25 of the ICSID Convention, including the existence of two parties to the dispute, which are a Contracting State and a national of another Contracting state, is necessary in order to arbitrate under its provisions. If any of those prerequisites is not fulfilled, the mechanism of the Convention will not be available and its provisions inapplicable 8. 6 Schreuer pp , Schreuer p Broches p

23 29 Exceptionally, the Convention allows the Contracting State to submit to ICSID arbitration disputes its own nationals, if the parties have agreed, because of foreign control, to treat the investor as a national of another Contracting State. 9 clearly pointed out that Amco tribunal what is needed for the final provision of article 25(2)(b) to be applicable, is ( ) that ( ) the parties agree to treat it [locally incorporated company] as a foreign judicial person As stressed by Broches such agreement shall be express and unambiguous 11 as [t]he extension of the Centre s jurisdiction to foreign-controlled companies, incorporated in the host countries is an exception to the general rule, which excludes disputes between a State and one of its nationals from the jurisdiction of the Centre Moreover, it shall be noted that according to the general principle of international law that the international courts and tribunals may exercise jurisdiction over the state only upon its consent, 13 as by granting such consent state party waives a significant part of its sovereignty and independence. 14 Referring specifically to the consent to treat a company as a foreign investor within the meaning of article 25(2)(b) of the ICSID Convention, Broches draws the attention to its importance and suggests that the arbitral tribunals shall not assume the existence of an agreement between the parties to such exceptional treatment. 32 In the present case, the agreement of the parties to treat Claimant as a foreign investor for the purposes of Article 25(2)(b) of the ICSID Convention has never existed. Claimant, encumbered by the burden of proof to this extent, has entirely failed to prove the contrary and thus this arbitration shall be discontinued. 2. The Tribunal should apply the because test when considering Article 25(2)(b). 9 Article 25(2)(b) of the ICSID Convention. 10 Amco p Broches, p. 246, see also Plama para.199; Wintershall para.167 and authorities invoked therein, 12 Broches, p Wintershall para. 160, Ambatielos p National Grid para

24 33 Article 25(2)(b) of the ICSID Convention decides that a national of another Contracting State is any juridical person which (...) because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention. 34 Cited Article provides for certain requirements that are to be fulfilled to find host State s consent to pursue exception dealing with locally incorporated companies. A very well stated Schreuer s commentary on LETCO shall be recited in this matter. Read together with the Tribunal s reasoning on an implicit agreement on nationality (...) all that is required for purposes of Art. 25(2)(b) is the objective fact of foreign control over the local company, the host State s awareness of this objective fact and otherwise valid consent to ICSID s jurisdiction. The host State s agreement to treat the local company as a national of Contracting State and the casual nexus expressed in the word because may be then construed from these elements None of those conditions were fulfilled in a present case. Thus, Claimant may not rely on the exception provided in Article 25(2)(b) of ICSID Convention, because it would dangerously extend this Centre s jurisdiction over nationals and their own States, which would be certainly against the object and purpose of ICSID Convention. C. Alternatively, even if the Tribunal decides to pierce the corporate veil, it shall look beyond the first layer to find genuine control over Claimant. 36 In SA Argentina the Tribunal explained use of lifting the corporate veil doctrine in accordance with investment disputes: ( ) the existence and materiality of ( ) control have to be objectively proven in order to establish ICSID jurisdiction ( ). It would not be consistent with the text, if the Tribunal, when establishing whether there is foreign control, would be directed to pierce the veil of the corporate entity national of the host State and to stop short at the second layer it meets, rather than pursuing its objective identification of foreign control up to its real source, using the same criterion with which it started Schreuer, p SA Argentina, para

25 37 It is to be noted that in many cases, what was at issue, was not the objective existence of foreign control, but the nationality of this foreign control. In S.O.A.B.I and S.A.R.L. for this matter the Tribunals did not hesitate to pierce the successive corporate layers to look for genuine control. Most importantly the best approach would appear to be a realistic look at the true controller thereby blocking access to the Centre for juridical persons that are controlled directly or indirectly by nationals of non- Contracting States or nationals of the host State Once again, having in mind the object and purpose of ICSID Convention, it must be clearly stated that MedBerg is indirectly controlled by both nationals of non- Contracting States and national of the host State. MedBerg is fully controlled by MedX. Nevertheless, it must be stressed, that MedX is controlled in 50% by MedScience a Laputan company, and in other 50% by dr Frankensid, who has dual nationality he was born in Bergonia and later on was naturalized in Amnesia. It is also worth to mention, tha Laputa is not a party to ICSID Convention. Besides, Article 25(2)(a) expresis verbis indicates, that irrespective of which several nationalities is the effective one, national of another Contracting State ( ) does not include any person who ( ) also had the nationality of the Contracting State party to the dispute ( ). 39 Therefore, having the entire picture, the Tribunal shall not have any doubts, that MedX is simply a shell company, which would provide for ICSID jurisdiction and rights protection under BIT, for entities not admissible in any way for those privileges. Furthermore, as it was rightly stated by Respondent in Rompetrol: To allow claims by own nationals through the device of a foreign shell company would be a radical change from established international law and have a wide impact on the network of BITs In conclusion, the Tribunal should find, that it lacks jurisdiction on the grounds, that Claimant is not eligible for BIT and ICSID protection, as it is a local company, controlled in fact partly by a non-signatory to neither of treaties and a national of a Contracting State. 17 Schreuer, para Rompetrol, para

26 D. Claimant may not invoke the MFN clause contained in BIT1 to attract dispute resolution provisions from BIT2. 41 Even if the Tribunal finds that the explicit Respondent s consent to treat Claimant as a foreign investor for the purposes of Article 25(2)(b) is not required, Claimant may not rely on the MFN CLAUSE to attract dispute resolution provisions contained in BIT2 as (1.) persuasive precedents prove that the MFN CLAUSE may not be invoked to attract Consent Clause; (2.) literal interpretation of the MFN CLAUSE leads to the conclusion that it does not encompass dispute settlement provisions (3.) Claimants interpretation of the MFN CLAUSE broadens the scope of Respondent s consent to arbitrate and should not be permitted and (4.) it would override the public policy underlying BIT1. 1. Persuasive precedents prove that the MFN CLAUSE may not be invoked to attract the Consent Clause. 42 Although Respondent acknowledges that in few cases international tribunals allowed for application of the MFN clauses to attract certain procedural provisions relating to dispute settlement 19, Respondent submits that these cases shall be distinguished and that the recent trend of narrow interpretation of the MFN clauses, clearly visible in the international jurisprudence of the last few years, shall be followed. 43 The prevailing line of jurisprudence relating to the application of the MFN clauses to dispute resolution provisions, departing from the Maffezini ruling, is clearly visible in the recent rulings of e.g. Siemens, Plama, Wintershall or Telenor tribunals. The latter, provide for strong grounds, for marginalization of the Mafezzini and alike rulings, which permit a wide interpretation of the MFN clause. 44 Firstly, as pointed out by Telenor tribunal relying on the reasoning of Plama, adoption of the wide interpretation of the MFN clause contained in a basic treaty would: 19 Maffezini case, AWG Group case,

27 45 expose the host State to treaty shopping by the investor among an indeterminate number of treaties to find a dispute resolution clause wide enough to cover a dispute that would fall outside the dispute resolution clause in the base treaty Secondly, such a wide interpretation shall inevitably lead to the uncertainty and instability of the international investment relations. 21 Thirdly, a wide interpretation of the MFN clause may displace ( ) dispute resolution mechanism specifically negotiated by the parties Literal interpretation proves that the MFN Clause does not encompass dispute settlement provisions. 47 Even if the Tribunal accepts application of the MFN clauses to the dispute settlement provisions and follows the reasoning of Maffezini, it shall be found that the particular factual and legal background of the present dispute prohibits an interpretation of the MFN CLAUSE contained in BIT1, as encompassing dispute resolution and permitting to invoke the Consent Clause. 48 There shall be no doubts that the MFN CLAUSE, as a bilateral investment treaty, shall be interpreted according to the rules of interpretation set out in Article 31 of the Vienna Convention, according to which treaty provisions shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 49 Pursuant to one of the most general and widely accepted rules of application of the MFN clauses the ejusdem generis rule, the MFN clause may be used to invoke other international treaties provisions, when the host state is a party, only to the extent that it falls within the limits of the subject-matter of the clause. 23 In line with the above Plama tribunal pointed out that 50 MFN provision in a basic treaty does not incorporate by reference dispute settlement provisions in whole or in part set forth in another treaty, unless the MFN provision in 20 Telenor para Telenor para.94, Plama para Telenor para Draft Articles on MFN, Article 9 and Article 10; Commentaries to Draft Articles p

28 the basic treaty leaves no doubt that the Contracting Parties intended to incorporate them MFN CLAUSE does not contain any reference to the dispute resolution provisions and merely refers to the treatment not less favourable, it may not provide for good grounds to conclude that the parties to BIT2 intended to include jurisdictional issues within the scope of operation of the MFN CLAUSE. 52 As stated by the Wintershall tribunal, even the words like all matters relating to in the MFN clause may not be sufficient to extend such clause to the dispute resolution provisions of the BIT 25 as they may not constitute an evidence of the clear and unambiguous intent of the parties signatory to the BIT to include dispute settlement matters within the scope of the MFN clause. The above view was shared in the most recent jurisprudence and legal writings Moreover, as pointed out in Wintershall, if the parties to the BIT intend to cover jurisdictional issues with the operation of the MFN clause, they may agree that the above contains an explicit reference to the dispute resolution provisions. Such reference, as provided in several BITs entered into by the United Kingdom, clearly reflects parties intention. 3. Claimants interpretation of the MFN CLAUSE broadens the scope of Respondent s consent to arbitrate and should not be permitted. 54 As stressed by Wintershall tribunal invocation of MFN treatment to dispute settlement does relate to and has a bearing on consent (of the Host State). It is particularly true in the present dispute, as one may not deny the fact that the consent to treat a certain person as a foreign investor, which bears a consequence of unconditional offer to arbitrate, constitutes a matter of the consent. 55 Respondent acknowledges that the arbitral tribunals in certain circumstances permitted to invoke the MFN clause to attract provisions relating to the dispute settlement. Nevertheless, in the cases where Claimant purported to override the express 24 Plama para Wintershall para McLachlan p

29 stipulations of the BITs creating the jurisdictional obstacles for ICSID arbitration, contrary to the consent given by the state in the investment treaty, the tribunals clearly denied claimants rights to do so. 27 Arbitral tribunals allowed to invoke MFN clause only in cases related to the procedural obstacles such as waiting period 28 and, as already noted above, in the lack of consent to treat a company as a foreign investor for the purposes of Article 25(2)(b) of the ICSID Convention it should not be permitted. 4. Claimants interpretation of BIT2 provisions violates public policy considerations underlying BIT1. 56 Even if the Tribunal accepts the view that the MFN clauses may be applied to attract dispute resolution provisions, it shall be noted that even the arbitral tribunals which shared the above view, such as Maffezini tribunal, stressed that [t]his operation of the most favoured nation clause does, however, have some important limits arising from public policy considerations It shall be noted that the discrepancies in the wording and the scope of the protection accorded to investors by Bergonia in both BIT1 and BIT2 are not accidental and arise out of its justifiable public policy reasons. Firstly, one may not ignore the fact that both BIT1 and BIT2 were concluded in the same year. 30 Therefore, it would be difficult to accept the view that the different wording of relevant provisions contained therein was not considered carefully by the contracting parties. Secondly, it shall be taken into consideration that the relations between Bergonia and each of the contracting states to BIT1 - Conveniencia and BIT2 Tertia, differs substantially, as e.g. contrary to Conveniencia, Tertia is not a Member of the WTO. Moreover, it shall be noted that BIT1 substituted a previous bilateral investment treaty, by which Conveniencia and Bergonia were bound by since 1979, 31 and the wording of BIT2 27 Plama para See e.g. Mafezzini, Siemens. 29 Maffezini para Record at p. 12 and p Article 12(4) of BIT

30 suggests that the latter constitutes the first treaty between Bergonia and Tertia of that kind The above clearly indicates, that the relevant provisions of BIT1 and BIT2 vary for valid public policy reasons reflecting different relations of Bergonia with both the Conveniencia and Tertia, and therefore BIT2 provisions may not be transposed on the grounds of BIT1 protection. E. Claimant would not be able to benefit from the relevant provisions of BIT2. 59 A contextual analysis of the relevant provisions of BIT2 clearly shows that even if the Tribunal finds that Claimant shall be permitted to invoke the MFN clause to attract dispute resolution regulations contained in BIT2, and in particular the Consent Clause, it shall be found that Claimant may not compel Respondent to arbitration as (1.) Claimant shall not be allowed to invoke only the Consent Clause and shall fulfill all standing requirements set out in BIT2 (2.) Claimant fails to fulfill standing requirements of the dispute resolution provisions of BIT2 (3.) Denial Clause additionally limits the possibility of invoking relevant provisions of BIT2 and (4.) the relevant provisions that Claimant intends to rely on are not more favourable to Claimant. 1. Claimant shall not be allowed to invoke only the Consent Clause 60 As already pointed out above, even if the Tribunal allows Claimant to rely on the MFN CLAUSE to attract the dispute settlement provisions of BIT2, Claimant shall not be permitted to invoke only the Consent Clause from the dispute settlement provisions contained in Article VI of BIT2 as they provide for requirements of an offer to arbitrate made by Respondent and shall be considered in their entirety. 61 Therefore, even if the attraction of the dispute settlement provisions of BIT2 by operation of BIT1 MFN CLAUSE shall be allowed to Claimant, it shall fulfil all 32 See Article XIII of BIT2 and the ultimate recital thereof

31 standing requirements prescribed therein, not only the conditions of the Consent Clause, which Claimant otherwise fails to prove. 2. Claimant does not fulfil standing requirements of the dispute resolution provisions of BIT2. 62 First, pursuant to ejusdem generis rule referred to above, the MFN clauses may be used only if the basic treaty covers the same subject matter as the treaty which includes provisions Claimant purports to attract. Applying the above to the dispute settlement issues, the scope of disputes, which may be resolved pursuant to relevant provisions of both treaties shall be the same, otherwise MFN clause shall not cover them. Especially, if the secondary treaty provision limits in some extent the jurisdiction of ICSID tribunal, e.g. sets out a requirement that in order to be arbitrable it should arise out of the secondary treaty and not any other such provisions may not be attracted by MFN clause 33. under relevant provisions such provision should not be attracted by MFN clause. Article VI of BIT2, clearly states that the dispute settlement provisions apply to the disputes arising out of alleged breach of any right conferred or created by this Treaty [BIT2]. 34 The above prerequisite is not and could never have been met in the present dispute, as the alleged investment of Claimant is not protected by provisions of BIT2 and therefore they could not have been ever breached by any actions undertaken by Respondent towards Claimant. Consequently, MFN CLAUSE may not attract dispute settlement provisions of BIT2. 63 Second, BIT2 contains so called fork-in-the-road clause, which permits the investor to compel the state signatory to BIT2 only provided that the national or company concerned has not submitted dispute for resolution under paragraph 2 (a) or (b), 35 i.e. did not submit the dispute for resolution to the courts or administrative tribunals of the host state being a party to the dispute. In the present case, Claimant, having 33 Plama para Article VI(1) of BIT2. 35 Article VI(3) of BIT

32 initiated the proceedings before the Patent Review Board 36 fails to fulfill the above test. 64 Finally, Claimant does not even fulfil the requirements of the Consent Clause. Pursuant to the Consent Clause (Article VI.(8) of BIT2), a company legally incorporated under the applicable laws and regulations of Bergonia, shall be treated as a foreign investor for the purposes of Article 25(2) (b) of the Convention only if (i) immediately before the occurrence of the event or events giving rise to the dispute (ii) it was an investment of nationals or companies of the other contracting party. Thus, it shall be concluded that the wording of the CC clearly indicates that the above prerequisites must be fulfilled jointly. It shall be recalled that Claimant is controlled by the national of Bergonia - Mr. Frankensind, therefore the second prerequisite of the Consent Clause is not met. 3. Denial Clause additionally limits the possibility of invoking relevant provisions of BIT2. 65 Denial Clause contained in Article I.2 of BIT2 sets out circumstances in which the advantages of BIT2 may be denied to an investor by the host state. 66 Right of denial may be executed towards an entity, which (i) has no substantial business in the other Party or alternatively (ii) is controlled by the nationals of a third country, with which the denying Party does not maintain normal economic relations. In the view of the facts of the present case, Claimant is co-controlled by the company incorporated in Laputa, which due to the tensions on certain trade issues and imposition of economic sanctions resulting from the above 37 has no economic relations with Respondent. 67 In the view of the above, if the Respondent could have ever legitimately suspect that Claimant would seek protection under BIT2 would have executed its right referred to above. 36 Clarifications1 No Clarifications1 No

33 4.The relevant provisions that Claimant intends to rely on are not more favourable and therefore may not be attracted by the MFN CLAUSE. 68 According to a well established principle, the MFN clauses permit investors to invoke only provisions of other bilateral investment treaties that are more favourable to the investments or/and investors of the third party state accorded by the host state 38. In order to conclude that the treatment of the third party treaty is more favourable, the treatment of the investor provided under basic treaty shall be found discriminatory and the comparison shall be drawn between like persons or things The above shall be considered in the view of the fact that the MFN CLAUSE contained in BIT1 provides that none of the contracting states to BIT1 shall subject the investors of the other Contracting State or their investments to treatment less favourable than it accords to investors or investments of any other third state. 70 Presumably, Claimant will claim that as the recourse of arbitration constitutes a substantive part of the international investment protection, the existence of the Consent Clause, which enables a company incorporated in the host state to be treated as a foreign investor upon fulfilment of strictly indicated circumstances without a need to obtain an individual consent of the host state for such treatment is more favourable. 71 Nevertheless, any such allegations are ungrounded, because although BIT2 contains a blank consent to treat a national of its own state as a foreign investor for the purposes of Article 25(2)(b) of ICSID Convention, which as such could be considered as more favourable in comparison to the lack of such consent on BIT1, as already noted above the dispute resolution provisions provide for a complete mechanism, which ought to be considered in its entirety. Consequently, Claimant shall not be allowed to invoke solely its part, namely the Consent Clause. The dispute resolution provision contained in Article VI of BIT2, provide for the additional limitations of jurisdiction more restrictive than those of BIT1, e.g. fork-in-the-road clause which significantly narrows the scope of disputes that may be submitted on its basis to ICSID arbitration. 38 Commentaries to Draft Articles on MFN p Commentaries to Draft Articles on MFN p. 31; Horn p

34 Therefore, in the present case it shall be concluded that the treatment provided under the provisions of BIT2 is not more favourable to Claimant. IV. CLAIMANT S ACTIVITY DOES NOT CONSITUTE AN INVESTMENT. A. General remarks. 72 Summing up briefly, Respondent s standpoint is that the Tribunal lacks jurisdiction in the case. BIT1 protects only investments made by investors and Claimant cannot be acknowledged as an investor respectfully to the previous paragraph. And even if tribunal examines requirements for investment itself, there is no possibility whatsoever to recognize a patent as lawful and legitimate investment on the ground of the ICSID Convention requirements. B. BIT1 protects only investments made by investors. 73 In order to ascertain, whether Claimant s activity in Bergonia constitutes an investment, plain meaning of the BIT1 as well as its context must be considered. Such approach is fully consistent with General Rules of Interpretation stated in Article 31(1) (2) of the Vienna Convention on the Law of Treaties. 74 Therefore Article 1 Definitions is not the only part of the Treaty which must be reviewed respectfully. Claimant cannot disregard the fact, that starting from the Preamble of the BIT1, notion of investment is always connected with a notion of the investor - i.e. [States] desiring to intensify economic co-operation between both countries and create favorable conditions to increase investments by investors ( ). Further articles quote the whole phrase investments by investors in every kind of protection granted by the Treaty. 75 Indeed, Contracting States in any way do not express will to protect investments alone, but only to protect investments made by investors. It is quite logical regarding the fact, that Bergonia and Conveniencia defined investor differently - Article 1.3(a)(b)